Watching Washington Frank n. wilner
Rail’s role looks bright for crude oil market share
egardless of whether Congress approves construction of the final phase of the 1,700-mile crude-oil carrying Keystone XL pipeline from the oil-soaked sands of Alberta, Canada, and North Dakota’s Bakken Shale oil formation south to Gulf Coast refineries, the railroads will continue to grow their market share of crude oil transport. Modern methods of extracting oil— using sand, chemicals and water under high pressure, called “fracking”—have unlocked previously unimagined quantities of North American crude, with predictions that by 2020 America alone will become the world’s largest producer of crude oil. Fracking technology has made North Dakota second only to Texas as America’s largest crude oil producer, with Alaska third. While railroads have been transporting oil since the 19th century—in wooden barrels prior to the introduction of tank cars—they are reemerging as a decisive and safe transport partner to domestic oil producers. And that’s because existing and proposed pipelines do not have the capacity to transport the North American crude oil now being produced. Unlike pipelines, railroads provide logistics flexibility. A string of 200-ton locomotives pulling 120 tank cars of crude oil allow railroads to move as much oil daily in 10 unit trains as will the Keystone XL pipeline—850,000 barrels daily. But unlike the fixed-route pipeline, railroads can deliver oil virtually everywhere the nation’s 163,000-mile track network reaches—and with unrivaled flexibility to change destinations immediately as refinery needs shift. So important have railroads become to the delivery of new sources of crude oil that rail crude oil shipments have
increased by 20 fold since 2009, with railroads delivering almost 234,000 tank-car loads to refiners in 2012— some 167 million barrels, which is 7% of the nation’s crude oil production and up from under 3% in 2011. • BNSF alone will be serving 50 scattered refinery destinations by 2014.
Unlike pipelines, railroads provide logistics flexibility. And new oil-unloading rail facilities can be constructed within months. • New oil-unloading rail facilities can be constructed in months. Morgan Stanley Research reports that new rail oil-unloading facilities, with capacity to handle one billion barrels daily, are being built or planned to help transport an annual increase by 2016 of three billion more barrels daily. “Producers are beginning to realize that rail provides better opportunity” in the form of shorter duration contracts [one-to-five years vs. 10-15 years for pipelines] and flexibility to serve diverse destinations, reports Morgan Stanley. • Kinder Morgan Energy Partners— a pipeline operator—is constructing a crude-oil-by-rail facility in Houston to receive 210,000 barrels daily of Canadian and Bakken Shale oil. • Refiner Phillips 66 has committed to receiving by rail at a New Jersey
refinery 91 million barrels of oil over five years—some 50,000 barrels daily. • A Philadelphia Sun Oil refinery, which was relying on more expensive imported oil, has shelved plans to close after contracting to receive by rail 33,000 barrels daily of North Dakota Bakken Shale oil. • PBF Energy intends to ship by rail 80,000 barrels daily of Canadian crude oil to its refinery in Delaware. • Valero Energy has ordered some 5,300 new tank cars to move 30,000 barrels daily of Canadian crude oil to its refineries in Louisiana and California. With misguided self-interest— misguided because pipelines cannot handle the capacity of North American crude oil coming on line—pipeline interests are asserting railroads are not a safe mode of transport, which is demonstrably incorrect. The former managing director of the National Transportation Safety Board, Peter Goetz, has analyzed the data— including a pipeline-funded study by the Manhattan Institute that sought to paint harshly railroad crude-oil transport. He says that while spill accidents are rare for both modes, railroads are a safer choice. He reports that for every million barrel-miles moved, pipelines spill more than twice as much oil as railroads do. Since 2002, railroads have had but 35 incidents where more than five gallons were spilled. In 2010, a single pipeline rupture spilled 800,000 gallons near Michigan’s Kalamazoo River. Energy derived from crude oil generates jobs, improves mobility, and enhances the quality of life, with flexible, financially strong, and safe freight railroads playing a crucial role in helping America to regain its energy independence.